The market was down today as foreclosure-gate threatens to shut down the foreclosure process for banks quicker than an AIDS ridden penis has shut down the porn industry, though with potentially much more dire consequences (unless that AIDS penis touched the lovely Tori Black, because Money McBags can think of no more dire consequence than a world deprived of her talents).  The point is, the equity markets are just beginning to figure out that earnings in the financial services sector could be slightly more fucked than Josef Fritzl‘s “Father of the Year” campaign and if the foreclosure process is pushed out, or potentially morphs in to some kind of political clusterfuck (like worrying where to put a mosque, or where to put a cigar), then the lingering effects on home prices, consumer spend, and the market will surely upset even the most algorithmic and least fundamental of the HFTs.

Look, Money McBags hasn’t gone through every iteration of what the fuck this foreclosure mess could mean.  He’s not sure what exactly it will do to MBS CDOs and fixed income investors, what kind of slippery slope it sets up for those who continue to pay their mortgage, what it does to mortgage guarantors (wait, are they even still around?), title insurers, and every fucking flip this house program on HGTV. That said, at the end of the day he knows the government will come in and bail the banks out at the expense of the taxpayer or the value of the dollar (or likely both).  With TARP and the previous bailouts on the books, the government already opened their figurative Pandora’s box (which was nowhere near as delightful as this Pandora‘s box) which let moral hazard out in to the market, never to be put back in, so Money McBags is sure the banks will survive this foreclosure issue, even if the rest of the economy doesn’t.  Either way, this bears paying hella close attention to, though this bears paying even hella closer attention to.

In other macro news today, new claims for unemployment came in above analyst guesses in a trend more prevalent and potentially more harmful than reality TV or emailing cock shots.  The reported number was 462k (until it is revised upwards next week in the government’s “Hold the shock and hope for no awe” strategy, and yes, Money McBags is as tired of writing that as you are of reading it) which was 17k above analyst guesses that new claims would remain flat at 445k (or down 4k from the upwardly revised number of 449k).  Interestingly, the market pretty much ignored this number but if new claims had come in 17k better than guesses, it likely would have been lobster tails and blow jobs for everyone as the market only seems to move on relative good news and ignores the absolute awful news.

Also, the US trade deficit rose 8.8% to $46.4B sparked by imports from China as the devaluation of the dollar has yet to make it competitive with China’s manipulated Yuan (but give Bernanke time on that one).  The growing trade deficit should further reduce GDP guesses as economist models continue to play catch up in figuring out how to deal with fat tails (and Money McBags suggests dealing with them lovingly).  And finally the PPI was up a modest .4% (with core PPI up .1%) in the daily macro news about which no one gives a fuck.

—-

Internationally, Singapore is doing their best to keep the US poor (and don’t forget to tip your analyst on that pun) as they surprised economists (and surprising an economist is about as difficult to do as Paris Hilton or multiplying by 1) by widening the trading band of the Singapore dollar to protect against inflation.  This caused the currency to surge as investors sold off the US dollar which is quickly becoming more worthless than a business school recommendation written by Bernie Madoff or a Reddy Ice dealership in Alaska.  Elsewhere, in France workers remained on strike to protest cuts to their pensions as well as the French government’s refusal to make Jerry Lewis’ birthday a national holiday (and yep, Money McBags went there in his attempt to show he can even write for Jay Leno).

In the market, financial stocks went down faster and more consistently than a fluff girl on the set of 65 Guy Cream Pie due to foreclosure-gate and the fact that bank balance sheets are more full of shit than Newt Gingrich’s wedding vows or a constipated elephant with an enlarged colon.  BAC, C, and WFC were all down 4%+ as the market fears the litigation write-downs and earnings issues will further make a mockery of the banking business.

But here is what Money McBags likes most about the financial sector, the top-rated financial analyst by Bloomberg Markets was only right on 38% of his fucking calls in the past two and a half years.  Holy fucking shit are you kidding Money McBags? The most “expert” of the bank “experts” (or as we say, the anti-Dick Bove), was wrong 62% of the time so riddle Money McBags this, why the fuck does the buy side use these ass clowns when all they do is print irrelevant shit and get stuff wrong?  It’s more non-sensical than Schrodinger’s cat or Heidi Montag‘s singing career.  Honestly, if the experts are wrong 62% of the time on what is essentially a coin flip binomial distribution (buy or sell), then the number of standard deviations must be so high that either these experts are undeniably terrible at their jobs or the banks are legitimately deceptive and unanalyzable, or the more likely, a combination of the two.  So Money McBags has a simple solution for bank analysts, just rate everything a sell and then take the rest of your lives off because that way you are likely to be right much more than 38% of the time which would make you the best at what you do.

In other stock news rumors were swirling that AOL was interested in buying YHOO! after which they may try to buy Pointcast, Geocities, Webvan, GovWorks, MySpace, the very NSFW Youporn, and Hotornot.com as they try to roll up every shitty failed or second rate internet property they can find.  Rumor is CMGI is consulting on the deal.

In small cap stocks, one of Money McBags favorite shorts, WGO, put up their quarter today and sold off ~9% as investors realized that paying >20x earnings for a company that sells really expensive consumer discretionary products in a recession that will go deeper and longer than Lexington Steele is not the best idea.  Money McBags hopes to get through their Q here on the award winning When Genius Prevailed over the next few days but he doubts his valuation of at most $7.50 per share will change.   The reason Money McBags is pushing off the WGO analysis is because one of his other favorite shorts, ZAGG, went absolutely fucking berserk today, rising ~40% after announcing a huge increase in revenue guidance.  So thanks for that guys, really.

Money McBags has never liked this company and took such a dump all over them after their last quarter that even a coprophagiac would have been overwhelmed.   Based on their $50MM revenue guidance, sputtering growth, and declining margins, Money McBags guessed they would have $60MM in revenue for 2011 and earn ~$.32 per share but today ZAGG announced that they expect 70% revenue growth in 2010 to get them to $65MM this year, so fuck Money McBags, really.  Money McBags thesis remains the same and he just doesn’t see how this company has a long-term viable business model as they sell only one fucking product and that is a completely discretionary consumer product at a higher price point than competitors and for the 1MMth time, they don’t even own the patent on the fucking thing.  They’re basically just marketing someone else’s technology and have struck out with every other new product they have tried.  But whatever, Money McBags has to take his jimmy hat off to them for managing to sell in to more big box stores (he is assuming that is what caused the uptick).

So what the fuck do we do about this company?  If they can grow 30% next year (total guess, but before this new guidance that is what they were supposed to grow at this year) and see their gross margins drop to 50% (which is where they are trending as they have to give more of the profit to these high volume channels) while only marginally raising operating costs to ~$20MM (and this is a huge unknown to Money McBags), they can actually earn ~$.60 per share and closed today at ~$7.30 or only 12x that out of his ass guess.  So if one believes this wasn’t a one time bump and one believes that selling a piece of plastic to go around an iPhone is a viable business model, then ZAGG looks fairly cheap (and Money McBags just threw up in his mouth as typed that, and unfortunately he had shrimp for dinner).

—-

It will be interesting to see where gross margin comes in when they announce the Q and how they manage their operational costs, but kudos to ZAGG for getting it done right now and serving up a warm bag of dicks to Money McBags.  Money McBags isn’t always right, and he will gladly point out when he is not, but he believes his logic is sound and in the investing game, that is all by which you can really go.  So ZAGG wins for now, but Money McBags remains more skeptical that ZAGG will be able to keep this up for the long run than Ann Coulter‘s gynecologist.